The yield on Portugal's five-year benchmark bonds rose to 9.91 per cent on Monday, higher than levels seen in Ireland when Dublin was bailed out in November. The market estimate of the probability of a default is now 40 per cent, up from 30 per cent a month ago, as measured by credit default swaps.
Marc Chandler, strategist at Brown Brothers Harriman, said: "Portugal needs an international rescue. That is a given. It may also have to restructure its bonds, which could then spark contagion elsewhere."
Even in Portugal, few policymakers, with the notable exception of José Sócrates, the outgoing prime minister, and his caretaker government, expect the country will escape a bail-out. (read more)